Default on Payday Loans: The Consequences
In applying for payday loans, the borrower agrees to pay back the loan when the next paycheck comes, which is normally within a week or two. However, there are still some who have a hard time paying, which is something that should be avoided at all cost because a default on payday loans entails astronomical interest fees and rates.
Payday loans overview
Paydays loans are otherwise known as deferred deposit loans, check advance loans, or cash advance loans. Such credit advances are normally secured by means of a personal check issued by the borrower to the lender, containing the amount that the former wants to borrow. In addition to such amount, a fee for acquiring said loan will also be charged on the borrower, which will be based on how much the loan is. Hence, the face value of the check is divided into two: the loan itself and the fee. However, it is only the amount of loan that will be forwarded to the borrower.
The mentioned fee varies with every lending business. This makes it imperative for a borrower to check the annual percentage rates and the finance charges of the payday loan being applied for. If the borrower is not careful, they may end up paying an interest rate that is too high for handling, and thereafter resulting in a default on payday loans. For this reason, it is always advisable to inquire from one lending business to another to determine which among them offers the best deal.
The consequences of a default on payday loans
As discussed earlier, the charges that will be imposed on the borrower will be based on two factors: the usual service fees being imposed by the lending institution on all its debtors, and the amount being borrowed. Between the two, the latter can be controlled by the borrower as to lessen the interest that needs to be paid, in addition to the desired loan amount. This means that it is advisable to borrow only what is needed to make easier and quicker repayments, and not to default on payday loans.
However, even with the exercise of necessary caution in obtaining loans, some people still have a hard time making payments on time. Said default on payday loans will have corresponding undesirable consequences on the part of borrower.
The first possible payday loan default consequence might be an action on the part of the lender to deposit the check issued as collateral by the borrower. Remember, the amount of such check covers not only the amount borrowed, but also the fees charged by virtue of such loan. If the borrower has insufficient funds in the bank account, such a bill of exchange will bounce, resulting in more fees. Thus, being in default on payday loans has the effect of making the financial problems even larger.
Another serious effect is the possibility of being cut off from the world of payday loans. Normally, when the check of a borrower bounces, this will be reported to credit bureaus or the check database of the borrower so that the lending institutions can determine whether they should allow a person to borrow from them. If a borrower’s name is included in such list, the chances of being able to successfully acquire future loans will be lessened, if not totally eradicated.
Overcoming Default on Payday Loans
The consequences that one may experience because of not being able to pay on time are very serious and inconvenient for those who are frequently in need of cash. However, there are ways to deal with this unfortunate occurrence.
One way to overcome default on payday loans is by paying the whole obligation itself. This has the effect of removing your name in the list that credit bureaus have as regards people with unpaid debts. If such is not possible, another option to not default on payday loans would be contacting the lender to which the borrower is indebted and discuss payday loan repayment, if possible.
This is allowed in some states where payday loan policies contemplate a scenario wherein the borrower is given a repayment timeline. Such timeline varies with each payday loan company, but they normally range from 2 weeks to 3 months.
Among all the various options that can help one deal with financial hardships, acquiring payday loans is probably the easiest to go. However, some say that this should be a borrower’s last resort due to the high service fees and interest rates that payday lenders have. Such could get the borrower into very serious trouble once the loan is not paid on time.
Although it is not advisable to default on payday loans, there are times when such cannot be avoided. This is why it is necessary for one to borrow only the amount needed. The higher the loan is, the greater the rate or fee will be. More so, it can be beneficial to take extra caution in looking for institutions with the lowest possible rates and learn extensively about payday loan default and payday loan information.
The most important thing is to take time in making intelligent decisions on money matters that could greatly affect one’s future, such as making a default on payday loans.